REG-Lancashire Hld Ltd: Final Results
13/02/2020 07:05
LANCASHIRE HOLDINGS LIMITED
GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF
14.1% IN 2019
COMBINED RATIO OF 80.9% IN 2019
FINAL ORDINARY DIVIDEND OF $0.10 PER COMMON SHARE
FULLY CONVERTED BOOK VALUE PER SHARE OF $5.84 AS AT 31 DECEMBER 2019
13 February 2020
Hamilton, Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”) today
announces its results for the year ended 31 December 2019.
Financial highlights
Twelve months ended
31 December 2019 31 December 2018
Fully converted book value per share $5.84 $5.26
Return on equity (1) 14.1 % 2.4 %
Return on tangible equity (2) 16.5 % 3.0 %
Operating return on average equity 9.7 % 3.5 %
Dividends per common share for the financial year (3) $0.15 $0.35
(1) Return on equity is defined as the change in fully converted book value
per share, adjusted for dividends.
(2 ) Return on tangible equity excludes goodwill and other intangible
assets.
(3 ) See the paragraph headed “Dividends” below for the Record Date and
Dividend Payment Date.
Twelve months ended
31 December 2019 31 December 2018
Highlights ($m)
Gross premiums written 706.7 638.5
Net premiums written 424.7 417.7
Profit before tax 119.5 33.6
Profit after tax (1) 117.9 37.5
Comprehensive income (1) 145.7 24.7
Net operating profit (1) 111.5 39.8
Per share data
Diluted earnings per share $0.58 $0.19
Diluted earnings per share - operating $0.55 $0.20
Financial ratios
Total investment return (including internal currency hedging) 4.9 % 0.8 %
Net loss ratio 30.8 % 40.0 %
Combined ratio 80.9 % 92.2 %
Accident year loss ratio 51.3 % 70.0 %
(1) These amounts are attributable to Lancashire and exclude non-controlling
interests.
Alex Maloney, Group Chief Executive Officer, commented:
“The Lancashire Group has generated a strong RoE of 14.1% for the full year.
Our results reflect the measured pricing improvement that we have witnessed
during the course of the year and our disciplined underwriting approach, with
top line premium growth and a strong contribution from our investment
portfolio. These are pleasing results and are early evidence of the transition
to the harder stage of the cycle within insurance markets. However, whilst
Lancashire has achieved a profitable underwriting performance with a combined
ratio of 80.9% for the full year, we are still of the belief that further
pricing improvement is needed in many lines of business before the market
returns to a more sustainable environment.
Notwithstanding the Hagibis, Faxai and Dorian windstorm losses, which all
occurred during the second half of the year, the aggregate market insured loss
amounts are below what we have witnessed in recent years. In contrast, 2017
and 2018 generated exceptionally heavy insured catastrophe losses at a time of
unsustainably weak margins.
During 2019 however, the wider insurance markets have felt further stress
through a combination of reserve deterioration on casualty books and in
respect of prior year catastrophe loss reserves. Lancashire’s strategy of
underwriting predominantly short-tail lines has insulated us from the
reserving stress experienced in casualty insurance classes, and our reserving
from prior year catastrophe events remains robust. But these developments
illustrate that there is still a need for a continued focus on underwriting
discipline. Over the last few quarters stronger investment performance has
helped smooth earnings across the insurance market. Investment returns are
part of our overall return for our shareholders. But our market must always
insist on the right price for the underwriting risk which we take on.
I would like to thank Elaine Whelan, who steps down as our Group CFO in a
couple of weeks’ time for her role as a leader in Lancashire and for her
significant contribution to our success as a business over many years.
Finally, as we report on another year, I would like to thank all our staff for
their dedication, expertise and hard work, which is so central to our
success.”
Elaine Whelan, Group Chief Financial Officer, commented:
“With a year of below-average industry losses compared to prior years and a
strong investment performance, we are pleased to return to strong levels of
profitability, with a return on equity of 14.1% for the year, with all of the
Group’s platforms contributing to that return. Our combined ratio was 80.9%
and our investment return was 4.9%.
Our outlook for 2020 is for a continuation of rate improvements and we are
retaining most of our capital to ensure we are fully able to take advantage of
any underwriting opportunities that arise. We are, however, declaring our
standard final ordinary dividend of 10 cents per share, subject to shareholder
approval at our 2020 AGM. Including that dividend, we will have returned
105.0% of comprehensive income since inception.”
Underwriting results
Twelve months ended
Gross premiums written 2019 2018 Change Change RPI
$m $m $m % %
Property 223.8 214.6 9.2 4.3 106
Energy 94.9 103.0 (8.1 ) (7.9 ) 106
Marine 37.3 31.1 6.2 19.9 111
Aviation 53.2 33.0 20.2 61.2 115
Lancashire Syndicates 297.5 256.8 40.7 15.8 110
Total 706.7 638.5 68.2 10.7 109
Gross premiums written increased by 10.7% in 2019 compared to the same period
in 2018. The Group’s five principal segments, and the key market factors
impacting them, are discussed below.
Property gross premiums written increased by 4.3% in 2019 compared to the same
period in 2018. The property segment experienced new business growth along
with rate and exposure-related premium increases across all classes of
business, particularly in the property catastrophe and political risk classes.
Business flow in the political risk class is generally less predictable than
other classes of business due to the lead time and specific nature of each
deal. The new business was partially offset by the impact of multi-year
contracts written in the prior year that were not yet due to renew.
Energy gross premiums written decreased by 7.9% in 2019 compared to the same
period in 2018. While there was more new business in the worldwide offshore
and onshore energy classes in 2019 compared to 2018, the prior year benefited
from the restructuring of an existing Gulf of Mexico multi-year deal in
addition to premium adjustments that were made to prior underwriting year
risk-attaching business in the worldwide offshore energy class.
Marine gross premiums written increased by 19.9% in 2019 compared to the same
period in 2018. The growth reflects rate and exposure increases and favourable
prior underwriting year premium adjustments in the marine builders risk class.
In the prior year there was a reduction in exposure on prior underwriting year
risk-attaching business in the other marine class and less pro-rata business.
Aviation gross premiums written increased by 61.2% in 2019 compared to the
same period in 2018. The growth was primarily driven by new and renewal
business in the aviation deductible and other aviation classes of business as
that underwriting team continues to build their book. The increase was only
partially offset by exposure decreases in the AV52 and satellite classes.
In our Lancashire Syndicates segment, our Lloyd’s platform, gross premiums
written increased by 15.8% in 2019 compared to the same period in 2018. This
increase was primarily due to new business in the energy, aviation, marine and
terrorism classes of business, offset slightly by lower premiums in the
property classes.
*******
Ceded reinsurance premiums increased by $61.2 million, or 27.7%, in 2019
compared to the same period in 2018. The increase was primarily due to a
combination of additional cover purchased, including some quota share cover
for some of the new lines of business we have entered into, and the timing of
renewals.
*******
Net premiums earned as a proportion of net premiums written was 99.3% in 2019
compared to 99.0% for the same period in 2018.
*******
The Group’s net loss ratio for 2019 was 30.8% compared to 40.0% for the same
period in 2018. The accident year loss ratio for 2019, including the impact of
foreign exchange revaluations, was 51.3% compared to 70.0% for the same period
in 2018.
2019 was impacted by catastrophe activity in the form of hurricane Dorian and
typhoons Faxai and Hagibis. Our net losses recorded for these events,
excluding the impact of inwards and outwards reinstatement premiums, was $52.1
million. In 2018 our net losses from marine and natural catastrophe events,
excluding the impact of inwards and outwards reinstatement premiums, was
$104.9 million.
While reserves have been recorded, uncertainty exists on the eventual
ultimate net loss estimates in relation to hurricanes, typhoons and wildfires
as loss information after these types of events can take some time to obtain.
The Group’s ultimate net loss estimates for these natural catastrophe events
were derived from a combination of market data and assumptions, a limited
number of provisional loss advices, limited client loss data and modelled
loss projections. As additional information emerges, the Group’s actual
ultimate net losses may vary, perhaps materially, from the current estimates.
The final settlement of all claims is likely to take place over
a considerable period of time.
Excluding the impact of foreign exchange revaluations, the impact of the
current accident year events noted above on the Group’s loss ratio was as
follows:
Losses Loss ratio
$m %
Reported at 31 December 2019 129.8 30.8 %
Absent all catastrophe events 77.7 18.5 %
As reported in the Group’s results for the year ended 31 December 2018, and
excluding the impact of foreign exchange revaluations, the impact of the
marine and natural catastrophe loss events on the Group’s 2018 loss ratio
was as follows:
Losses Loss ratio
$m %
Reported at 31 December 2018 165.4 40.0 %
Absent natural catastrophe events 78.6 19.2 %
Absent large marine losses 147.3 34.7 %
Absent the combined events 60.5 14.4 %
Note: The table does not sum to a total due to the impact of reinstatement
premium.
The total estimated ultimate net loss, excluding the impacts of inwards and
outwards reinstatement premiums, for the 2018 reported marine and natural
catastrophe losses were as follows:
As at As at
31 December 2019 31 December 2018
$m $m
2018 Catastrophe and marine loss events (1) 100.6 104.9
(1 The 2018 loss events include hurricanes Florence and Michael, typhoons
Jebi, Mangkhut and Trami and the California wildfires, plus loss events within
our marine portfolio.)
Prior year favourable development for 2019 was $88.0 million, compared to
$126.9 million of favourable development for the same period in 2018. The
favourable development in both periods was primarily due to general IBNR
releases across most lines of business due to a lack of reported claims. In
2019, the Group also benefited from favourable development on the 2017
catastrophe loss events partially offset by 2018 accident year claims in the
energy and Lancashire Syndicates segments. In the prior period, the Group
benefited from a reduction on prior accident year property and energy claims.
The table below provides further detail of the prior years’ loss development
by class, excluding the impact of foreign exchange revaluations.
Twelve months ended
2019 2018
$m $m
Property 37.3 46.5
Energy 20.2 55.0
Marine 11.1 12.1
Aviation 1.1 1.4
Lancashire Syndicates 18.3 11.9
Total 88.0 126.9
Note: Positive numbers denote favourable development.
The table below provides further detail of the prior years’ loss development
by accident year, excluding the impact of foreign exchange revaluations.
Twelve months ended
2019 2018
$m $m
2009 accident year and prior 3.3 27.0
2010 accident year (0.9 ) 1.6
2011 accident year 1.4 4.7
2012 accident year 6.6 8.8
2013 accident year 4.2 3.5
2014 accident year (1.3 ) 3.4
2015 accident year 5.7 6.6
2016 accident year 19.3 33.3
2017 accident year 30.8 38.0
2018 accident year 18.9 —
Total 88.0 126.9
Note: Positive numbers denote favourable development.
The ratio of IBNR to total net loss reserves was 30.9% at 31 December 2019
compared to 39.3% at 31 December 2018.
Investments
Net investment income, excluding realised and unrealised gains and losses, was
$37.7 million in 2019, an increase of 8.6% compared to 2018. Total investment
return, including net investment income, net other investment income, net
realised gains and losses, impairments and net change in unrealised gains and
losses, was $83.2 million in 2019 compared to $12.5 million for 2018.
The Group’s investment portfolio generated a strong total return of 4.9% in
2019 with positive returns from all assets classes, driven primarily by the
three 25 basis point rate cuts by the Federal Reserve. Credit spreads also
tightened during the year. This was in contrast to 2018 which saw an increase
in treasury yields and the widening of credit spreads, resulting in an annual
return of 0.8%.
The corporate bond allocation represented 34.4% of managed invested assets at
31 December 2019 compared to 29.9% at 31 December 2018.
The managed portfolio was as follows:
As at As at
31 December 2019 31 December 2018
Fixed maturity securities 79.0 % 85.4 %
Cash and cash equivalents 11.4 % 4.8 %
Hedge funds 8.7 % 8.5 %
Private debt fund 0.9 % —
Equity securities — 1.3 %
Total 100.0 % 100.0 %
Key investment portfolio statistics were:
As at As at
31 December 2019 31 December 2018
Duration 1.8 years 1.5 years
Credit quality A+ A+
Book yield 2.4 % 2.7 %
Market yield 2.1 % 3.1 %
Third Party Capital Management
The total contribution from third party capital activities consists of the
following items:
Twelve months ended
2019 2018
$m $m
Lancashire Capital Management underwriting fees 7.9 6.6
Lancashire Capital Management profit commission 1.0 —
Lancashire Syndicates’ fees & profit commission 2.5 5.8
Total other income 11.4 12.4
Share of profit (loss) of associate 5.9 (7.1 )
Total net third party capital management income 17.3 5.3
The Lancashire Capital Management profit commission is driven by the timing of
loss experience, settlement of claims and collateral release and therefore
varies year on year. Following the significant catastrophe loss activity
during 2017 and 2018, and the resulting loss experience, there was no profit
commission for any of the 2017 or 2018 underwriting cycles. The higher
underwriting fees in 2019 reflect the increased level of premiums under
management compared to 2018. The Lancashire Syndicates’ fees and profit
commission were driven by the relative profitability of the underwriting years
impacting the profit commission in each period. The share of profit (loss) of
associate reflects Lancashire’s 10% equity interest in the Lancashire
Capital Management managed vehicle.
Other operating expenses
Other operating expenses were $106.0 million in 2019 compared to $89.2 million
in the same period last year. The increase was driven primarily by the
underlying performance of the Group which has resulted in a higher variable
compensation element of employee remuneration costs compared to 2018.
Employment costs have also increased due to general salary increases. This was
only partially offset by the impact of the depreciation in Sterling relative
to the prior period.
Equity based compensation
The equity based compensation expense was $9.6 million in 2019 compared to
$7.9 million in the same period last year. The equity based compensation
charge was driven by anticipated vesting levels of active awards based on
current performance expectations. Lower equity based compensation charges were
recorded in 2018 as required return thresholds for performance award vesting
were not met.
Capital
As at 31 December 2019, total capital available to Lancashire was $1.517
billion, comprising shareholders’ equity of $1.193 billion and $323.5
million of long-term debt. Tangible capital was $1.363 billion. Leverage was
21.3% on total capital and 23.7% on total tangible capital. Total capital and
total tangible capital as at 31 December 2018 were $1.391 billion and $1.238
billion respectively.
The Group will continue to review the appropriate level and composition of its
capital with the intention of managing capital to enhance risk-adjusted
returns on equity.
Dividends
The Lancashire Board declared the following dividends during 2019:
• A final dividend relating to 2018 of $0.10 per common share; and
• An interim dividend of $0.05 per common share.
Lancashire announces that its Board of Directors has declared a final dividend
for 2019 of $0.10 (approximately £0.08) per common share, subject to a
shareholder vote of approval at the AGM to be held on 29 April 2020, which
will result in an aggregate payment of approximately $20.1 million. On the
basis that the final dividend is so approved by shareholders at the AGM, the
dividend will be paid in Pound Sterling on 5 June 2020 (the “Dividend
Payment Date”) to shareholders of record on 11 May 2020 (the “Record
Date”) using the £ / $ spot market exchange rate at 12 noon London time on
the Record Date.
Shareholders interested in participating in the dividend reinvestment plan
(“DRIP”), or other services including international payment, are
encouraged to contact the Group’s registrars, Link Asset Services, for more
details at:
https://www.linkassetservices.com/shareholders-and-investors/shareholder-services-uk.
Financial Information
The Audited Consolidated Financial Statements for the year ended 31 December
2019 are published on Lancashire’s website at www.lancashiregroup.com.
The 2019 Annual Report and Accounts are expected to be posted to shareholders
on 9 March 2020 and will also be made available on Lancashire’s website.
Analyst and Investor Earnings Conference Call
There will be an analyst and investor conference call on the results at 1:00pm
UK time / 9:00am Bermuda time / 8:00am EST on Thursday 13 February 2020. The
conference call will be hosted by Lancashire management.
Participant Access:
Dial in 5-10 minutes prior to the start time using the number / confirmation
code below:
United Kingdom - Toll free: 08003589473
United Kingdom Toll: +44 3333000804
United States Toll free: +1 855 85 70686
United States Toll: +1 6319131422
Confirmation Code: 11716000#
URL for additional international dial in numbers:
https://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
The call can also be accessed via webcast, for registration and access:
https://event.on24.com/wcc/r/2171760/D35811815D634ED263502FFBB474FAC4
A webcast replay facility will be available for 12 months and accessible at:
https://www.lancashiregroup.com/en/investors/results-reports-and-presentations.html
For further information, please contact:
Lancashire Holdings Limited
Christopher Head +44 20 7264 4145 chris.head@lancashiregroup.com
Jelena Bjelanovic +44 20 7264 4066 jelena.bjelanovic@lancashiregroup.com
FTI Consulting +44 20 37271046
Edward Berry Edward.Berry@FTIConsulting.com
Tom Blackwell Tom.Blackwell@FTIConsulting.com
About Lancashire
Lancashire, through its UK and Bermuda-based operating subsidiaries, is a
provider of global specialty insurance and reinsurance products. The Group
companies carry the following ratings:
Financial Strength Rating ((1)) Financial Strength Outlook ((1)) Long Term Issuer Rating ((2))
A.M. Best A (Excellent) Stable bbb+
S&P Global Ratings A- Stable BBB
Moody’s A3 Stable Baa2
(1) Financial Strength Rating and Financial Strength Outlook apply to
Lancashire Insurance Company Limited and Lancashire Insurance Company (UK)
Limited.
(2) Long Term Issuer Rating applies to Lancashire Holdings Limited.
Lancashire Syndicates Limited benefits from Lloyd’s ratings: A.M. Best: A
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA- (Very Strong).
Lancashire has capital of approximately $1.5 billion and its common shares
trade on the premium segment of the Main Market of the London Stock Exchange
under the ticker symbol LRE. Lancashire has its head office and registered
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.
For more information, please visit Lancashire’s website at
www.lancashiregroup.com.
The Bermuda Monetary Authority (“BMA”) is the Group Supervisor of the
Lancashire Group with effect from 1 January 2019.
Lancashire Insurance Company Limited is regulated by the BMA, with its
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11,
Bermuda.
Lancashire Insurance Company (UK) Limited is authorised by the Prudential
Regulation Authority (“PRA”) and regulated by the Financial Conduct
Authority (“FCA”) and the PRA, with its registered office at Level 29, 20
Fenchurch Street, London EC3M 3BY, United Kingdom.
Lancashire Syndicates Limited is authorised by the PRA and regulated by the
FCA and the PRA. It is also authorised and regulated by Lloyd’s, with its
registered office at Level 29, 20 Fenchurch Street, London EC3M 3BY, United
Kingdom.
Lancashire Capital Management Limited is regulated by the BMA, with its
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11,
Bermuda.
This release contains information, which may be of a price sensitive nature
that Lancashire is making public in a manner consistent with the EU Market
Abuse Regulation and other regulatory obligations. The information was
submitted for publication, through the agency of the contact persons set out
above, at 07:00 GMT on 13 February 2020.
Alternative Performance Measures
As is customary in the insurance industry, the Group also utilises certain
non-GAAP measures (“Alternative Performance Measures” or “APMs”) in
order to evaluate, monitor and manage the business and to aid users’
understanding of the Group. In compliance with the Guidelines on APMs of the
European Securities and Markets Authority, we give information on APMs in the
table below. This information has not been audited.
Management believes that the APMs included in this release are important for
understanding the Group’s overall results of operations and may be helpful
to investors and other interested parties who may benefit from having a
consistent basis for comparison with other companies within the industry.
However, these measures may not be comparable to similarly labeled measures
used by companies inside or outside the insurance industry. In addition, the
information contained herein should not be viewed as superior to, or a
substitute for, the measures determined in accordance with the accounting
principles used by the Group for its audited consolidated financial statements
or in accordance with GAAP.
The following APMs included in this release have not been prepared in
accordance with the accounting principles used by the Group for its audited
and / or interim consolidated financial statements. Below is an explanation
of the definition of these APMs as well as information regarding their
relevance:
APM Definition Relevance
Net loss ratio Ratio, in per cent, of net insurance losses to net premiums earned. This ratio gives an indication of the amount of claims expected to be paid out per $1.00 of net premium earned in the financial year.
Net acquisition cost ratio Ratio, in per cent, of net insurance acquisition expenses to net premiums earned. This ratio gives an indication of the amount expected to be paid out to insurance brokers and other insurance intermediaries per $1.00 of net premium earned in the financial year
Net expense ratio Ratio, in per cent, of other operating expenses, excluding restricted stock expenses, to net premiums earned. This ratio gives an indication of the amount of operating expenses expected to be paid out per $1.00 of net premium earned in the financial year.
Accident year loss ratio The accident year loss ratio is calculated using the accident year ultimate liability re-valued at the current balance sheet date, divided by net premiums earned. This ratio shows the amount of claims expected to be paid out per $1.00 of net premium earned in an accident year.
Combined ratio Ratio, in per cent, of the sum of net insurance losses, net acquisition expenses and other operating expenses to net premiums earned. The Group aims to price its business to ensure that the combined ratio across the cycle is significantly less than 100 per cent.
Fully converted book value per share (“ FCBVS ”) attributable to the Group Calculated based on the value of the total shareholders’ equity attributable to the Group and dilutive restricted stock units as calculated under the treasury method, Shows the Group’s net asset value on a diluted per share basis for comparison to the market value per share.
divided by, the sum of all shares and dilutive restricted stock units, assuming all are exercised.
Return on equity (“ RoE ”) (RoE is also sometimes referred to as the change in FCBVS adjusted for dividends) The internal rate of return of the change in FCBVS in the period, plus dividends accrued. Tangible RoE attributable to the Group excludes intangible assets from capital. The Group’s aim is to maximise risk adjusted returns for its shareholders across the cycle.
Operating return on average equity Calculated as the net operating income (loss), divided by the average equity over the period, adjusted for dividends declared. Net operating income (loss) excludes; This metric gives an indication of the average percentage return generated by the Group’s core business.
realised gains and losses net of impairments, foreign exchange and tax.
Total investment return Total investment return measures investment income and net realised and unrealised gains and losses produced by the Group’s managed investment portfolio. The Group’s primary investment objectives are to preserve capital and provide adequate liquidity to support the Group’s payment of claims and other obligations. Within this framework the Group aims for a degree of investment portfolio
return.
NOTE REGARDING RPI METHODOLOGY
THE RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL METHODOLOGY THAT MANAGEMENT
USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND
REINSURANCE CONTRACTS. THE RPI WRITTEN IN THE RESPECTIVE SEGMENTS IS
CALCULATED ON A PER CONTRACT BASIS AND REFLECTS MANAGEMENT’S ASSESSMENT OF
RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY
PREMIUM VOLUME. THE RRPI DOES NOT INCLUDE NEW BUSINESS, TO OFFER A CONSISTENT
BASIS FOR ANALYSIS. THE CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION
TO COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE
RPI METHODOLOGY, MANAGEMENT MAY REVISE THE METHODOLOGY AND ASSUMPTIONS
UNDERLYING THE RPI, SO THE TRENDS IN PREMIUM RATES REFLECTED IN THE RPI MAY
NOT BE COMPARABLE OVER TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A
COMPARABLE NATURE SO IT DOES NOT REFLECT EVERY CONTRACT IN THE PORTFOLIO OF
CONTRACTS. THE FUTURE PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE
RPI IS DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM RATES.
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS
SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR
HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS “BELIEVES”, “ANTICIPATES”,
“PLANS”, “PROJECTS”, “FORECASTS”, “GUIDANCE”, “INTENDS”,
“EXPECTS”, “ESTIMATES”, “PREDICTS”, “MAY”, “CAN”,
“LIKELY”, “WILL”, “SEEKS”, “SHOULD”, OR, IN EACH CASE, THEIR
NEGATIVE OR COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN STATEMENTS
OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THE FINANCIAL POSITION OF
THE COMPANY AND ITS SUBSIDIARIES (THE “GROUP”), THE GROUP’S TAX
RESIDENCY, LIQUIDITY, RESULTS OF OPERATIONS, PROSPECTS, GROWTH, CAPITAL
MANAGEMENT PLANS AND EFFICIENCIES, ABILITY TO CREATE VALUE, DIVIDEND POLICY,
OPERATIONAL FLEXIBILITY, COMPOSITION OF MANAGEMENT, BUSINESS STRATEGY, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT
PLANS AND OBJECTIVES RELATING TO THE GROUP’S INSURANCE BUSINESS) ARE
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE GROUP TO BE MATERIALLY
DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE ACTUAL DEVELOPMENT OF
LOSSES AND EXPENSES IMPACTING ESTIMATES FOR TYPHOON HAGIBIS WHICH OCCURRED
IN THE FOURTH QUARTER OF 2019, HURRICANE DORIAN AND TYPHOON FAXAI WHICH
OCCURRED IN THE THIRD QUARTER OF 2019, THE CALIFORNIAN WILDFIRES AND HURRICANE
MICHAEL WHICH OCCURRED IN THE FOURTH QUARTER OF 2018, HURRICANE FLORENCE AND
THE TYPHOONS THAT OCCURRED IN THE THIRD QUARTER OF 2018, HURRICANES HARVEY,
IRMA AND MARIA AND THE EARTHQUAKES IN MEXICO THAT OCCURRED IN THE THIRD
QUARTER OF 2017 AND THE WILDFIRES WHICH IMPACTED PARTS OF CALIFORNIA DURING
2017; THE IMPACT OF COMPLEX AND UNIQUE CAUSATION AND COVERAGE ISSUES
ASSOCIATED WITH ATTRIBUTION OF LOSSES TO WIND OR FLOOD DAMAGE OR OTHER PERILS
SUCH AS FIRE OR BUSINESS INTERRUPTION RELATING TO SUCH EVENTS; POTENTIAL
UNCERTAINTIES RELATING TO REINSURANCE RECOVERIES, REINSTATEMENT PREMIUMS AND
OTHER FACTORS INHERENT IN LOSS ESTIMATIONS; THE GROUP’S ABILITY TO INTEGRATE
ITS BUSINESSES AND PERSONNEL; THE SUCCESSFUL RETENTION AND MOTIVATION OF THE
GROUP’S KEY MANAGEMENT; THE INCREASED REGULATORY BURDEN FACING THE GROUP;
THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP
WRITES OR MAY WRITE; THE GROUP’S ABILITY TO IMPLEMENT SUCCESSFULLY ITS
BUSINESS STRATEGY DURING ‘SOFT’ AS WELL AS ‘HARD’ MARKETS; THE PREMIUM
RATES WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE GROUP’S
TARGETED BUSINESS LINES; THE POSSIBLE LOW FREQUENCY OF LARGE EVENTS;
POTENTIALLY UNUSUAL LOSS FREQUENCY; THE IMPACT THAT THE GROUP’S FUTURE
OPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS
MAY HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT INITIATIVES OR DIVIDENDS;
THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY
THAN THE GROUP’S UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE
ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE
PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; INCREASED COMPETITION FROM
EXISTING ALTERNATIVE CAPITAL PROVIDERS, INSURANCE LINKED FUNDS AND
COLLATERALISED SPECIAL PURPOSE INSURERS, AND THE RELATED DEMAND AND SUPPLY
DYNAMICS AS CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF THE GROUP’S
LOSS LIMITATION METHODS; THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE
GROUP’S OPERATING SUBSIDIARIES’ RATINGS WITH A.M. BEST, S&P GLOBAL
RATINGS, MOODY’S OR OTHER RATING AGENCIES; INCREASED COMPETITION ON THE
BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; CYCLICAL
DOWNTURNS OF THE INDUSTRY; THE IMPACT OF A DETERIORATING CREDIT ENVIRONMENT
FOR ISSUERS OF FIXED MATURITY INVESTMENTS; THE IMPACT OF SWINGS IN MARKET
INTEREST RATES, CURRENCY EXCHANGE RATES AND SECURITIES PRICES; CHANGES BY
CENTRAL BANKS REGARDING THE LEVEL OF INTEREST RATES; THE IMPACT OF INFLATION
OR DEFLATION IN RELEVANT ECONOMIES IN WHICH THE GROUP OPERATES; THE EFFECT,
TIMING AND OTHER UNCERTAINTIES SURROUNDING FUTURE BUSINESS COMBINATIONS WITHIN
THE INSURANCE AND REINSURANCE INDUSTRIES; THE IMPACT OF TERRORIST ACTIVITY IN
THE COUNTRIES IN WHICH THE GROUP WRITES RISKS; A RATING DOWNGRADE OF, OR A
MARKET DECLINE IN, SECURITIES IN THE GROUP’S INVESTMENT PORTFOLIO; CHANGES
IN GOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE THE GROUP
CONDUCTS BUSINESS; LANCASHIRE HOLDINGS LIMITED OR ANY OF THE GROUP’S
BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME TAXES IN THE UNITED STATES
OR IN THE UNITED KINGDOM; THE IMPACT OF THE CHANGE IN TAX RESIDENCE ON
STAKEHOLDERS OF THE COMPANY; AND NEGOTIATIONS REGARDING THE UK’S
RELATIONSHIP WITH THE EUROPEAN UNION ON THE GROUP’S BUSINESS, REGULATORY
RELATIONSHIPS, UNDERWRITING PLATFORMS OR THE INDUSTRY GENERALLY, FOLLOWING THE
UK’S EXIT FROM THE EUROPEAN UNION WHICH TOOK PLACE AT THE END OF JANUARY
2020.
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF
PUBLICATION. LANCASHIRE HOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY
OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) TO DISSEMINATE
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT TO REFLECT ANY
CHANGES IN THE GROUP’S EXPECTATIONS OR CIRCUMSTANCES ON WHICH ANY SUCH
STATEMENT IS BASED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE GROUP OR INDIVIDUALS ACTING ON BEHALF OF THE GROUP ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS NOTE. PROSPECTIVE INVESTORS
SHOULD SPECIFICALLY CONSIDER THE FACTORS IDENTIFIED IN THIS RELEASE WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT DECISION.
Consolidated statement of comprehensive income
Twelve months Twelve months
2019 2018
$m $m
Gross premiums written 706.7 638.5
Outwards reinsurance premiums (282.0 ) (220.8 )
Net premiums written 424.7 417.7
Change in unearned premiums (35.8 ) (19.7 )
Change in unearned premiums on premiums ceded 32.8 15.5
Net premiums earned 421.7 413.5
Net investment income 37.7 34.7
Net other investment income 8.0 (4.2 )
Net realised gains (losses) and impairments 8.9 (5.1 )
Share of profit (loss) of associate 5.9 (7.1 )
Other income 11.4 12.4
Net foreign exchange losses (1.5 ) (1.6 )
Total net revenue 492.1 442.6
Insurance losses and loss adjustment expenses 264.5 307.4
Insurance losses and loss adjustment expenses recoverable (134.7 ) (142.0 )
Net insurance acquisition expenses 105.4 126.4
Equity based compensation 9.6 7.9
Other operating expenses 106.0 89.2
Total expenses 350.8 388.9
Results of operating activities 141.3 53.7
Financing costs 21.8 20.1
Profit before tax 119.5 33.6
Tax (charge) credit (1.3 ) 4.0
Profit after tax 118.2 37.6
Non-controlling interests (0.3 ) (0.1 )
Profit after tax attributable to Lancashire 117.9 37.5
Net change in unrealised gains/losses on investments 28.6 (12.9 )
Tax (charge) credit on net change in unrealised gains/losses on investments (0.8 ) 0.1
Other comprehensive income (loss) 27.8 (12.8 )
Total comprehensive income attributable to Lancashire 145.7 24.7
Net loss ratio 30.8 % 40.0 %
Net acquisition cost ratio 25.0 % 30.6 %
Administrative expense ratio 25.1 % 21.6 %
Combined ratio 80.9 % 92.2 %
Basic earnings per share $ 0.59 $ 0.19
Diluted earnings per share $ 0.58 $ 0.19
Change in fully converted book value per share 14.1 % 2.4 %
Consolidated balance sheet
As at 31 December 2019 As at 31 December 2018
$m $m
Assets
Cash and cash equivalents 320.4 154.6
Accrued interest receivable 7.2 6.8
Investments 1,525.1 1,659.0
Inwards premiums receivable from insureds and cedants 350.5 318.1
Reinsurance assets
- Unearned premiums on premiums ceded 89.5 56.7
- Reinsurance recoveries 327.5 322.9
- Other receivables 16.9 9.8
Other receivables 51.7 35.3
Investment in associate 108.3 67.1
Property, plant and equipment 1.2 1.4
Right-of-use asset 18.2 —
Deferred acquisition costs 81.7 74.2
Intangible assets 154.5 153.8
Total assets 3,052.7 2,859.7
Liabilities
Insurance contracts
- Losses and loss adjustment expenses 874.5 915.0
- Unearned premiums 406.4 370.6
- Other payables 27.4 36.0
Amounts payable to reinsurers 126.6 81.3
Deferred acquisition costs ceded 17.6 7.1
Other payables 47.5 45.4
Corporation tax payable 2.4 0.9
Deferred tax liability 9.6 11.2
Interest rate swap 1.1 0.4
Lease liability 21.9 —
Long-term debt 323.5 324.3
Total liabilities 1,858.5 1,792.2
Shareholders’ equity
Share capital 101.5 101.0
Own shares (13.3 ) (9.4 )
Other reserves 881.3 869.0
Accumulated other comprehensive income (loss) 13.5 (14.3 )
Retained earnings 210.6 120.9
Total shareholders’ equity attributable to equity shareholders of Lancashire 1,193.6 1,067.2
Non-controlling interest 0.6 0.3
Total shareholders’ equity 1,194.2 1,067.5
Total liabilities and shareholders’ equity 3,052.7 2,859.7
Basic book value per share $5.92 $5.31
Fully converted book value per share $5.84 $5.26
Consolidated statements of cash flows
Twelve months Twelve months
2019 2018
$m $m
Cash flows from (used in) operating activities
Profit before tax 119.5 33.6
Tax paid (2.1 ) (3.3 )
Depreciation 3.9 1.4
Interest expense on long-term debt 18.5 18.1
Interest expense on finance leases 1.3 —
Interest and dividend income (39.7 ) (36.6 )
Net amortisation of fixed maturity securities (1.3 ) (0.6 )
Equity based compensation 9.6 7.9
Foreign exchange losses (gains) 2.5 (4.3 )
Share of (profit) loss of associate (5.9 ) 7.1
Net other investment (income) losses (8.8 ) 3.9
Net realised (gains) losses and impairments (8.9 ) 5.1
Net unrealised losses (gains) on interest rate swaps 0.7 (1.6 )
Changes in operational assets and liabilities
- Insurance and reinsurance contracts (46.0 ) (51.5 )
- Other assets and liabilities (8.8 ) 18.3
Net cash flows from (used in) operating activities 34.5 (2.5 )
Cash flows from (used in) investing activities
Interest and dividends received 41.1 35.9
Purchase of property, plant and equipment (1.1 ) (0.2 )
Purchase of underwriting capacity (0.7 ) —
Investment in associate (35.3 ) (14.8 )
Purchase of investments (948.3 ) (1,143.1 )
Proceeds on sale of investments 1,127.7 1,115.8
Net cash flows from (used in) investing activities 183.4 (6.4 )
Cash flows used in financing activities
Interest paid (18.5 ) (18.0 )
Lease liabilities paid (3.6 ) —
Dividends paid (30.2 ) (70.2 )
Distributions by trust (1.3 ) (2.6 )
Purchase of shares from non-controlling interest — (0.3 )
Net cash flows used in financing activities (53.6 ) (91.1 )
Net increase (decrease) in cash and cash equivalents 164.3 (100.0 )
Cash and cash equivalents at the beginning of year 154.6 256.5
Effect of exchange rate fluctuations on cash and cash equivalents 1.5 (1.9 )
Cash and cash equivalents at end of period 320.4 154.6
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